Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Reinsurance industry undergoing evolution not revolution: GC’s Priebe


Changes in the global reinsurance market, exacerbated and perhaps triggered to a degree by the growth of alternative reinsurance capacity, resulting competition and benign loss activity, has been more of an evolution than a revolution, according to Guy Carpenter’s Vice Chairman, David Priebe.

Various influential factors including ample capacity, a lack of large loss events and intense market competition, have combined and persisted in recent times leading industry experts and analysts to note, predict and attempt to navigate changes in the reinsurance industry landscape.

But recent commentary from experienced industry executives suggests that the evolution of the international reinsurance sector certainly isn’t something new and that essentially, whether traditional or alternative capital providers, reinsurers are doing the same job now as they were a decade ago, albeit with a broader scope of services and wider global reach.

“It’s been an evolution; it hasn’t been a revolution. The service that we’re providing is very similar today to what it was 10 years ago,” explained Priebe.

“The real change has been that we’ve expanded the services and the roles the reinsurance industry is providing in terms of risk analytics, supporting clients as they seek out new growth opportunities and lines of business, and helping innovate in terms of using technology to do a better job understanding risk, pricing risk and managing risk,” continued Priebe.

The evolution of the global reinsurance industry is an interesting topic, and one that has been significantly influenced by the wealth of alternative, or third-party reinsurance capital providers entering the space, seeking the returns and diversification of reinsurance exposures.

Essentially, however, the expanding base of alternative reinsurance capital providers are doing the same job as the traditional players have been doing for the last 10 years or so.

Highlighting how alternative capital providers are essentially doing the same thing as traditional players, and echoing the view of Guy Carpenter’s Britt Newhouse, President of Swiss Re’s U.S. P&C Reinsurance division, Bill Donnell said; “So you need to understand that alternative capital is focused in on low barriers to entry, high margin, basically nat cat business and retro business. And that’s a very defined segment of the market.”

The abundance of alternative capital hasn’t, and most likely won’t spark a reinsurance industry revolution. Undoubtedly, as new sources of capacity continue to enter the space, alongside the typical influx of traditional sources of capital, non-traditional and traditional sources of reinsurance will likely persist at structurally lower levels.

And that, it seems, has and continues to be part of the industry’s evolution towards providing coverage for an increasingly significant and growing set of global exposures.

Priebe expands on this point; “Ten years ago if the U.S. government came to us and asked if we could put together a program to handle all the U.S. flood exposure, the answer would have been no. There just wasn’t enough capital or technology or capability to do that. Today the answer is yes, we can. We can put together a $50 billion program within the global reinsurance community to manage the flood risk that is currently on the backs of the taxpayers.”

Part of the sector’s evolution is the rise, acceptance and now largely perceived as here-to-stay-post-event of alternative capital and, without the additional capacity large-scale programmes, like the flood example given by Priebe, simply wouldn’t be possible.

Fundamentally, the flood of alternative reinsurance capacity is exactly that, an alternative source of capital that supplements the existing capital in the global reinsurance market.

Furthermore, capital market participants, including alternative capital providers, catastrophe bond players, and the wider insurance-linked securities (ILS) landscape have developed over time. And, part of the broader market evolution includes the efficient and low-cost capital from ILS funds, institutional investors, and other providers of non-traditional capacity.

Couple this with the fact that third-party, capital markets players interested in the reinsurance sector have their own structuring, portfolio management approach and increasingly advanced modelling capabilities and analytics, it’s integration into the global reinsurance industry should be embraced and utilised.

Discussing alternative capital’s integration and the evolution of the sector, Third Point Re Chairman and Chief Executive Officer (CEO), John Berger commented; “To a certain extent, traditional reinsurers are already being displaced on the property cat side. Cat funds, collateralized cat products and the cat bond market, they’re taking an increasing share of the cat market every year.”

A valid observation, but regardless of how large of a share of the property catastrophe market alternative capacity seeks to cover, traditional insurers and reinsurers will still be required, as the alternative capital shouldn’t be viewed as a threat, or something that is trying to completely displace the traditional sources, but more as an opportunity and surplus of additional capacity.

Ignoring the skills, expertise, cheaper & efficient capital provided by alternative players, by the traditional firms, is a risky road to take. Ignoring its benefits and the fact that it’s part of the global reinsurance market’s evolution could mean being left behind in a sector increasingly underlining the importance of relevance.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.